48645 No. 10 KNOWLEDGE EXCHANGE SERIES September 2008 Electricity Beyond the Grid: Innovative Programs in Bangladesh and Sri Lanka by Chandra Govindarajalu, Raihan Elahi, and Jayantha Nagendran Extending the national grid to remote rural areas remains a challenge in many developing countries. Complementary offgrid solutions using renewable energy applications can bring the benefits of electricity service to many more low-income rural households.Thisnoteexaminestwosuccessfuloffgrid electrification projects in Bangladesh and Sri Lanka. Key to their success are design principles that can be applied to any program that aims to deliver rural energy services. In 2005, only 32 percent of Bangladesh's population had grid electricity, despite the country's successful rural Solar lamps permit extended business hours for a village electrification program. By that same year, 66 percent shop in Sri Lanka. of Sri Lanka's residents had access to the national grid (IEA 2007). Thanks to innovative offgrid projects that resources to increase its funding for an additional include renewable energy applications, 250,000 more 70,000 systems under this project component.3 low-income rural households in both countries now enjoy the benefits of an electricity connection. Administered by the Infrastructure Development Company Limited (IDCOL), a nonbanking financial Bangladesh institution, the project offers participating organiza- In Bangladesh, the Rural Electrification and Renew- tions (POs)--microfinance institutions and other able Energy Development Project has succeeded be- nongovernmental organizations and private-sector yond expectations. Over the past five years, through institutions that meet program eligibility criteria-- a loan and grant program supported by the World both credit and GEF grants with which to purchase Bank's International Development Agency (IDA) SHSs. The POs sign an agreement with the IDCOL and Global Environment Facility (GEF), more than that provides for refinancing up to 80 percent of the 179,000 household photovoltaic (PV) systems, known loans, which the POs have passed on to customers as solar home systems (SHSs), have been installed, far (Asaduzzaman, Barnes, and Khandker 2008). The exceeding the 50,000 expected by 2008 (World Bank IDCOL offers the POs soft loans with a 10-year ma- 2002a).1 The delivery of SHSs to new customers has turity and 2-year grace period at an annual interest reached an unprecedented rate of more than 7,000 rate of 6 percent. Households make down payments rural households per month. Given that the original covering at least 10 percent of system costs. On receipt target was met three years early at a cost savings of of the down payment, the POs enter into a sale/lease about US$2 million,2 the World Bank has reallocated agreement and install the system. They extend house- holds credit on various terms and conditions, with tenors of 1 to 5 years at annual interest rates of 8 to 15 percent using a declining balance method. 1 Typically, a SHS consists of a PV module (popular capacities range from 30 to 60 peak watts), which generates electricity from sunlight; a rechargeable battery for electricity storage; a charge While the initial project phase focused mainly on SHSs, controller to prevent battery overcharging or deep discharging; the IDCOL recently expanded its funding scope to in- and wiring and fixtures. A SHS supplies power to 4­6 compact fluorescent lamps, a black-and-white television set, and possibly clude biomass electrification, biogas cooking fuel, and a mobile phone charger or DVD player. In Asia, the average other rural energy services. The GEF-financed grants cost of a complete system is US$8­11 per watt (US$360­480 for a for SHSs are provided on a declining scale--from system of 40 peak watts). In Africa, by contrast, the cost is higher, at about US$16­17 per watt (for example, US$800 for a 50-watt system in Ghana). 3The German Agency for Technical Cooperation and the Ger- 2 Planned IDA/GEF program funding was US$18 million, including man Agency for Financial Cooperation have also come forward US$2.87 for technical assistance. with funding to meet the new target of 200,000 by 2010. ESMAP Knowledge Exchange Series No. 10 1 5723-Book.pdf 1 9/11/08 2:24:50 PM KNOWLEDGE EXCHANGE SERIES September 2008 Box 1. Working Together for Quality Standards To ensure quality standards under Bangladesh's Rural Electrification and Renewable Energy Development Project, POs purchase PV panels, batteries, and other components approved by the Technical Standards Committee. Vendors submit required documents, war- ranties, and product-testing certificates to the Commit- tee for its examination and approval. Once products are approved, the POs can buy them directly from the vendorandsetuptheirowntermsofpurchaseandpay- ment. Eager to cooperate with the POs, most vendors offer delayed payment terms to facilitate higher sales volume. The POs arrange for user training in operation and maintenance, regular after-sales service, and the timely handling of customer complaints. The IDCOL rou- tinely inspects the installed systems and shares its find- ings with the POs, who agree to correct any problems. Billboard raises public awareness about the benefits of Representatives from all POs--16 currently--participate solar home systems in Bangladesh. in monthly operations committee meetings, where they share progress and resolve problems. Technical audits US$90 per system initially to US$50 today--which conducted by the IDCOL and Committee verify whether vendor-supplied equipment meets stated standards. encourages commercial market development. The POs use a small portion of the grant--from US$20 initially to US$10 today--for institutional development, while Services Delivery Project,6 a private sector­led effort the rest is directed toward capital cost buy-down. The supported by the World Bank, GEF, and local financial investment program is complemented by a strong institutions, complement grid-based extension by the cost-shared technical assistance program that features Ceylon Electricity Board, the country's vertically-inte- awareness-building training for PO staff members and grated national utility (World Bank 2002b, 2003). Over consumers.4 The IDCOL covers 80 percent of training the past decade, the project has installed more than costs, while the POs contribute the remaining 20 per- 100,000 SHSs, helping thousands of rural households cent. In addition, the IDCOL provides logistical sup- to switch from poor-quality kerosene lamps to more port and implements a media campaign to promote efficient electric lighting. SHS use throughout the country.5 The project's centerpiece is a market-based credit Many more SHS customers have been reached as a program available to participating credit institutions result of using service delivery channels put in place by (PCIs)--commercial banks, microfinance institutions, the project's key POs, including Grameen Shakti and the Bangladesh RuralAdvancement Committee. Hav- and leasing companies that meet eligibility criteria. ing already gained the confidence of rural residents, Currently, the program comprises 11 PCIs: five com- such institutions can function as trusted sources of SHS mercial banks, two licensed specialized banks, two delivery; those trained as SHS vendors can function leasing companies, one finance company, and one even more efficiently. In addition, their collection his- microfinance institution. The PCIs can refinance up to tory has been strong enough to develop a credit line. 80 percent of their loan amounts. They access credit at The main challenge--overcome via investing in initial theaverageweighteddepositrate,7 repayablein15years technical assistance--has been to ensure that the POs with a maximum 5-year grace period. In turn, they of- gained sufficient training in SHS technology, supplier fer households, community-based organizations, and selection, and after-sales service (box 1). private developers subloans with which to finance SHS, village hydropower systems, and mini-hydropower Sri Lanka projects, respectively. The subloans have a maximum In Sri Lanka, the Renewable Energy for Rural Econom- maturity of 10 years with a 2-year grace period, not ic Development Project and its predecessor Energy 6The Energy Services Delivery Project was implemented during 4 Issues range from SHS configuration and positioning, installation, 1997­2002. and maintenance to guidelines for system monitoring and inspec- 7Defined as the weighted average of the interest rates paid to tion and microcredit marketing methods. depositors by all commercial banks on interest-bearing term de- 5 For details, visit www.idcol.org. posits, as issued weekly by the Central Bank of Sri Lanka. 2 ESMAP Knowledge Exchange Series No. 10 5723-Book.pdf 2 9/11/08 2:24:54 PM exceeding the useful economic life of the equipment financed. The PCIs assume the credit risk on the refi- nanced subloans and must repay them according to an agreed-on amortization schedule, regardless of whether their borrowers repay (box 2).8 Since 1997, the offgrid component of the credit program has received about US$38 million in IDA/GEF support, including some US$3 million in technical assistance. The Administrative Unit (AU) of the Development Fi- nance Corporation of Ceylon Bank manages the credit program. TheAU monitors suppliers' compliance with global technical specifications and service standards for SHSs and solar lanterns--thus providing the basis for consumer education and protection--and investi- gates unresolved consumer complaints.9 The AU also approves loans contingent on evidence of installation (for SHS) or design approval by a chartered engineer (for village hydropower systems). Beyond its quality- Typical village hydropower system in Sri Lanka assurance role, the AU facilitates stakeholder discus- commercial or development bank. Community-based sions to solve implementation problems. Quarterly organizations, known as Electricity Consumer Societies, stakeholder meetings are organized to welcome new initiate the process with the help of nongovernmental members, discuss innovative approaches and proce- organizations, consultants, and the private sector. Com- dures, and review ongoing assignments and project munity participation and cash contributions promote performance.10 To resolve sector-specific issues, the the development of local capacity and skills, strengthen AU conducts special meetings with the Village Hydro community relations, and aid in cost recovery. Fol- Working Group and the Solar Industries Association. lowing the Sri Lankan concept of shramadana,11 village In addition to SHSs, the project finances village hy- families assist in constructing civil works and erecting dropower systems. Typically, the lending PCI is a distribution lines. Some 5,000 additional families could gain electricity access via the more than 80 village hy- 8 For details on program operating guidelines and PCI eligibility dropower projects implemented under the program. criteria, visit www.energyservices.lk. 9 Suppliers are granted free market entry, provided that the sys- The project also offers output-based, co-financed grants, tems they sell meet project specifications and honor warranty which are disbursed only after pre-defined results are and service requirements. achieved; such grants are transparent and do not cover operation and maintenance costs. To encourage devel- 10 Minutes of these meetings are posted on the project website (www.energyservices.lk). opment of a commercial offgrid market, the grants are offered on a declining scale. To ensure technical quality, Box 2. Financing Solar Home Systems they are passed on to suppliers rather than final ben- ThemostpopularSHSfinancingmodelunderSriLanka's eficiaries. In the case of SHS grants, the solar company Renewable Energy for Rural Economic Development Project is consumer credit through the microfinance decides what proportion should be used as a price break institutions that work closely with solar companies. Via for customers and what should be spent on market their dealer networks, the solar companies sell SHSs development activities, such as building infrastructure and offer operation and maintenance services. The for operation and maintenance.12 business model is structured through a memorandum of understanding between the microfinance institution What Have We Learned? and the solar company, key features of which are a buyback scheme and identification of the consumer- Success of the offgrid projects in Bangladesh and Sri service responsibilities of the two parties. Following this Lanka can be attributed, in part, to a flexible project model, the Sarvodaya Economic Enterprises Develop- ment Services (SEEDS)--the project's key PCI in SHS financing and a recognized leader in offgrid energy 11Voluntary work in exchange for payment. services delivery in remote rural areas--financed more 12The Uva provincial government recently adopted this output- than 60,000 systems during 2002­06. based, co-financing approach, recognizing that it could support at least three times as many households by doing so. ESMAP Knowledge Exchange Series No. 10 3 5723-Book.pdf 3 9/11/08 2:24:56 PM design responsive to the needs of implementing organiza- critical project stages.14 In Sri Lanka, the AU provided tions, suppliers, and beneficiaries. Such flexibility, in turn, the PCIs and developers technical training and support reflects a shared set of project design principles: and launched an extensive media campaign in associa- Improved access to capital. The projects' output- tion with the PCIs and offgrid developers. focused approach offered private companies and nongovernmental organizations incentives to enter Conclusion new markets and deliver pre-defined products, while ThesuccessstoriesinBangladeshandSriLankademonstrate grants increased product affordability and covered a that it is possible to implement offgrid programs in associa- portion of the incremental costs of introducing envi- tionwiththeprivatesectorandmicrofinanceinstitutionsthat ronmentally-friendly products. operate in rural areas. Improved access to capital, reliable after-sales service, and investment of time and resources in Reliable after-sales service. Both projects had effective, market development and regular stakeholder involvement after-sales maintenance networks in place, particularly proved instrumental for project scale-up. While these project for systems financed by the microfinance institutions, experiences are based mainly on SHS delivery, the design which were trained in basic technical-repair skills. principles key to their success are not limited by technology. Overlay of project on existing outreach networks. In fact, both projects have begun to experiment with provid- Rural customers were reached via service delivery ing other offgrid and rural energy services. channels already put in place, primarily by the micro- finance institutions.13 Solar companies, in particular, References worked in close partnership with these networks. Asaduzzaman, M., Douglas F. Barnes, and Shahidur R. Khandker. 2008. Restoring Balance: Bangladesh's Rural Energy Realities. Regular stakeholder consultation. In Bangladesh ESMAP Report. World Bank, Washington, DC. and Sri Lanka, the IDCOL and AU, respectively, IEA (International Energy Agency). 2007. World Energy Outlook 2006. played lead roles in facilitating discussion among Paris: Organisation for Economic Co-operation and Develop- ment. committed stakeholders--from the financial to the public sector and from field organizations to civil so- World Bank. 2002a. "Bangladesh Rural Electrification and Renewable Energy Development Project." Project Appraisal Document 23887. ciety and industry--to jointly resolve issues. World Bank, Energy (SASDE), South Asia Sustainable Develop- ment Department, Washington, DC. Investment in market development. Setting the stage for new offgrid markets requires teaching key stake- ------. 2002b. "Sri Lanka Renewable Energy for Rural Economic Development Project." Project Appraisal Document 23886. holders about the technologies and how to properly im- World Bank, Energy (SASDE), South Asia Sustainable Develop- plement and monitor projects; it also requires effective ment Department, Washington, DC. media campaigns to develop consumer confidence. In ------. 2003. "Sri Lanka Energy Services Delivery Project." Imple- Bangladesh, the IDCOL led initial training for the POs mentation Completion and Results Report 25907. World Bank, and used grant resources to launch media campaigns at Energy (SASDE), South Asia Sustainable Development Depart- ment, Washington, DC. 13Two key project microfinance institutions--Grameen Shakti in Bangla- desh and SEEDs in Sri Lanka--were 2006 winners of the Ashden Awards, an international competition that recognizes organizations that imple- 14The Bangladesh project benefited from the media outreach expertise ment innovative, yet practical, schemes demonstrating sustainable en- that Grameen Shakti gained via support from the U.S. Agency for Inter- ergy in action (www.ashdenawards.org). national Development and the International Finance Corporation. ESMAP's Knowledge Exchange Series (KES) shares results of recent energy sector work to catalyze discussion and learning among energy policy makers and practitioners. The KES is produced by the Energy Sector Management Assistance Program, a global knowledge and technical assistance partnership administered by the World Bank and sponsored by bilateral official donors since 1983. ESMAP's mission is to assist clients from low-income, emerging, and transition economies to secure energy requirements for equitable economic growth and poverty reduction in an environmentally sustainable way. About the authors: Chandra Govindarajalu is Senior Energy Specialist, Middle East and North Africa Energy Unit; World Bank. Raihan Elahi is Senior Energy Specialist, Africa Energy Unit; World Bank. Jayantha Nagendran is a Renewable Energy Consultant. Douglas F. Barnes, Technical Editor · Norma Adams, Editor · Marjorie K. Araya, Production Photos: World Bank Photo Library Copyright © 2008 Printed on recycled paper. Visit us online at www.esmap.org 5723-Book.pdf 4 9/11/08 2:24:59 PM